Economic Myths: the Planning System is Responsible for High House Prices

Ian Abley has a go at "the British Conservative Party’s favorite think tank", Policy Exchange, about peddling myths whilst purporting to be myth-busters. However, he's not shy of peddling a few old favourites himself:Planning facilitated the New Labour expansion of the fund of mortgage lending up to 2008, so that even in 2012 there is £1,200,000,000,000 of live mortgage debt generating interest. This is a volume of lending made possible by, rather than causing, house price inflation. Inflation caused by the fact that the planning system explicitly prevents people from buying a field cheaply and building a house on it, with a rate of planned new house building lower than at any time since the First World War, not the Second. The effect, by Morton’s own measure, is that in England a median priced home now costs seven times the median salary. Averages conceal other realities, but the general trend is clear. House price inflation, highest in the South and deflating unevenly in parts of the North, is inextricably linked to the planning law. Planning equals mortgage security in housing equity. No, Mr Abley, house price inflation is not caused by the planning system. What the planning system actually does is artificially lower land prices round towns and cities. Land that should be worth £400,000 an acre is being sold for £4,000 an acre, because it cannot be built on and realize its market value. Ireland is a case in point. Ireland didn't have the 1947 act, so planning controls there were much looser. This didn't stop huge house price inflation leading up to the 2008 crash (nor did huge oversupply of houses, viz previous economic myth), inflation that was only stopped by the bursting of the bubble.Interesting to note that the 1947 Planning Act was not passed for reasons of bureaucratic control, or as a NIMBYs' charter, but was actually a misguided attempt at propping up house prices.